61% of businesses surveyed in our FraudTrack survey believed that resource constraints brought on by COVID-19 disruptions would limit their investment in fraud detection and prevention tools in 2021. This is good news for the fraudsters ready to prey on your business.
Many businesses have been forced into drastic cost cutting measures over the last year in order to stay afloat, but cutting back on fraud detection and prevention measures is risky business given the potentially huge impact of fraud.
The potential scale of the problem is clear when you consider more than three-quarters (76%) of the businesses surveyed admitted that they are more exposed to fraud since the onset of the COVID-19 pandemic, but somewhat alarmingly, fewer than half (46%) have undertaken fraud risk assessments since March 2020.
The real cost of fraud
By failing to invest in fraud prevention and detection, businesses risk losing much more should they be hit with a big fraud. Of the businesses that we surveyed that had experienced fraud, 27% lost more than £250,000 to fraud last year, some significantly more. Depending on the size of your business, this could mean the difference between survival and going under.
Harder to quantify but equally significant is the potential damage to a business’s brand and reputation from fraud if it makes the headlines. This can be have a very costly and long-lasting impact.
What can businesses do to prevent fraud?
Our survey found that 67% of businesses believed that fraud risk had increased due to working from home. However, only 42% had taken specific steps to ensure their data is more secure.
We always advise and encourage our clients to undertake regular fraud risk assessments. This vital business practice is perhaps more important than ever this year after the dramatic shift in business operations and can be an effective way of identifying and addressing potential fraud weak spots before it’s too late.
By undertaking regular fraud risk assessments and investing in addressing any weaknesses businesses can proactively help protect themselves against financial crime including some of the current commonly occurring frauds:
- ‘CEO frauds’ often involving synthetic identity fraud or ‘deep fakes’;
- supply chain frauds made possible by inadequate due diligence on new suppliers; and
- financial statement frauds where finance teams succumb to pressure to report positive results.
When your business is grappling with a range of tough decisions regarding cost controls and operational concerns, it can be tempting to reduce your investment in fraud prevention. However, to do so would be leaving your business vulnerable to the potentially catastrophic impact of fraud. Cutting back on fraud prevention and detection processes is a false economy when a relatively small outlay now, together with regular reassessments of fraud risk, could be one of the biggest savings your business can make.
If you would like advice on how to assess fraud risks and how to make effective investments in fraud prevention, please get in touch.
BDO Director, Forensic Accounting
Tel: +44 (0)7711 887 413
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